Estate Planning doesn’t – or shouldn’t – come neatly out of a box. When speaking to our clients about their Estate Planning needs, we’re considering their unique situations, as well as those of their families, to ensure the best plan and protection is put in place.
Recently, we’ve had several conversations with parents concerned about securing their children’s inheritance not only if their child was to be challenged by creditors, but if there was a breakdown in their relationship. In these circumstances, one tool to implement is a Lineal Descendants Testamentary Trust. Below are some details of how this trust works and when it might be considered.
What is a Lineal Descendants Trust?
A Lineal Descendants Trust is a Family Trust that is setup to strictly benefit your blood line relatives – your children, and in turn their children and then their children. Such a trust can be incorporated into your Will to deal with your assets when you pass away. This differs from a usual Testamentary Trust which generally includes a wider range of beneficiaries including spouses, in-laws and extended family members.
Why use a Lineal Descendants Trust?
We have seen many circumstances in which parents are concerned, or even just cautious, about their children’s marriages breaking down and the in-law receiving 50% (or more) of their child’s inheritance. With such a high divorce rate in Australia, it’s an understandable concern.
Others are concerned about their children’s spouses displaying at-risk behaviour such as gambling or addiction, or taking into account blended families.
Implementing a Lineal Descendants Testamentary Trust provides the greatest amount of protection possible to the legacy you are leaving your family. While there is no mechanism or structure that will provide absolute protection, this is one highly effective tool.
Flexibility
There is a range as to how limited the beneficiaries of a Testamentary Trust can be. It is often hard to weigh up the benefits of protecting trust assets in a “what if” situation, whilst also achieving the greatest tax benefits. So, if desired, the income of the trust can be distributed more widely to include other family members, whilst the capital can be made available to the limited (lineal) beneficiaries. This offers the best of both worlds by enabling tax planning whilst protecting the bulk of the trust inheritance.
How to create a Lineal Descendants Testamentary Trust
Consider the below questions in regards to implementing a Lineal Descendants Testamentary Trust:
- Do you have, or do you plan on having, children?
- Do you have concerns about your child’s current or future relationships?
- Do you have concerns about at-risk behaviour of family members aside from your children or grandchildren?
- Would you like to use your inheritance to benefit your bloodline children and grandchildren only (excluding in-laws and children from blended families)?
If you answered yes to any of the above questions, you should discuss the option of a Lineal Descendants Trust with an Estate Planning Professional. Should you wish to discuss your Estate Planning needs with us, phone 07 3223 6100.
